Margin Accounts And Covered Call Writing

By Alan Ellman:In real estate investing, the concept of leveraged investing is well known and documented in such best-sellers as Robert G. Allen’s "Nothing Down for the 2000s" and Michael A. Lechter’s "OPM" (Other People’s Money). The idea of generating profit while using little or none of your own money down is enticing and exciting. It actually does make sense in certain scenarios. For example, when you own an investment property, you are using “OPM” as your tenant is paying off the mortgage. When it comes to the stock market, the use of options is a great example of leveraged investing. The option buyer (not us, the call seller) is controlling shares of stock at a greatly reduced cost. When we write covered calls, we are using the cash generated from the call premium sale to either reduce our cost basis or to take the profit and re-invest it, thereby compounding profitsComplete Story »

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By Alan Ellman:Selling stock options is all about generating a cash flow. Calculating our initial profit, the potential for more profit (upside potential) and the protection of our initial profit (downside protection as opposed to breakeven of the entire position) is critical in making the most educated investment decisions. Accessing this information from the "Multiple Tab" of the Ellman Calculator will assist us in stock, option and strike selection.

By Alan Ellman:Checking option chains is standard operating procedure for covered call writers and options traders in general. From time to time, we will see an oddball strike price or similar strikes with different premiums in the same month for the same underlying security. We have entered the world of non-standard options.What are non-standard [NS] options? :

By Alan Ellman:In my last article I received a tremendous response when I wrote about the use of covered call writing with Powershares QQQ Trust, Series 1 (NASDAQ: QQQ). In this article I will show how to implement this great strategy in a bear market environment using inverse ETFs. Inverse ETFs use derivatives to bet against the direction of financial markets.

By Rookie IRA Investor:
Selling a covered call means that you sell or write a call option or options against shares that you already own in your account.
What is a call option?
When you buy a call, it gives you the right (but not the obligation) to buy a specific stock at a specific price per share within a specific time frame. A good way to remember this is: you have the right to "call" the stock away from somebody.

By Alan Ellman:As covered call writers, we have all looked at option chains. That's where we determine how much cash will be generated into our accounts when we sell our options. It's fun! We first inspect the current price of the underlying security (stock or ETF). Then we check out the closest strike prices (I-T-M, A-T-M and O-T-M) and take note of the bid and ask prices.

By Alan Ellman:Covered call writing requires a logical sequence of stock and option decisions. Once we have screened our stocks to locate the greatest performing stocks in the greatest performing industries we must make a decision as to which strike price to use. Our choices include:

There are plenty of great reasons to own residential real estate – you need a place to live, it’s cheap to borrow money, you get a tax break, and you pay your own mortgage instead of someone else’s.
But there are also bad reasons to own real estate. They’re misleading and deceiving and can lead to life-defining bad decisions. Here are two of them.
1. “There’s no better way to get rich than real estate.”

By Alan Ellman:One of the common flaws found in many of the studies of the covered call strategy is that they select only slightly out-of-the-money strike prices. Needless to say, a majority of covered call writers are also guilty of the same mistake. It is certainly understandable why one would lean to this strike as we ultimately will garner the very highest of